Why so many layoffs?

It has nothing to do with any economic slowdown

According to classical economics (which is full of shit) when demand goes up, the price goes up. This phenomenon of price rise across the economy is called Inflation.

Generally, when an economy is doing well and businesses are growing, there is a need to hire more people. This results in a higher demand for workers. By the same logic as above, higher demand results in higher prices - the salaries and wages go up. This in turn fuels inflation since workers have more money at their disposal.

By this logic, the bargaining power of workers needs to be broken in order to bring down inflation.

This was turned into law by one Mr Philips and his theory is known as the Philips Curve. The definition of which is unnecessarily convoluted and hence to put it simply:

Low unemployment causes wages to go up and therefore causes inflation.

---

COVID

The lockdowns saw some of the most historic layoffs. Unemployment rates shot through the roof. Many workers were shown how much they were “really valued" by their organisations. Your prospect of holding on to your job was bleak especially if you did something which educated people could not do, such as washing dishes or cleaning rooms.

There is an innate need in all of us to survive no matter how hard the odds are.

Here is my hypothesis -

People, even if they were cleaning dishes, have been using the internet for at least a decade now. Many of these people who were laid off by their organisations found work online.

There is an exploding content paradigm. Millions of blogs are uploaded onto websites all across the world with the only purpose of driving Search Engine Optimisation (SEO). 100s of millions of videos are being uploaded every day because people seem to have a lot of time to waste and spend that time sitting and watching incredibly crap videos. If you do not trust me, watch any video on the Youtube channel Tanmay reacts.

All of this is smoothly monetised by the miracle of Google AdWords.

I think many of the people who were laid off, found content work online. They made more money than they did slogging at their work 10 hours a day. That demographic has not come back to work.

What that leaves us with, is a worker shortage.

Photo by Jeriden Villegas on Unsplash

Workforce

If you look at industries which use the largest number of people, the industry right at the top is retail. Now, people might think that retail is dead and that COVID claimed it and all shopping has moved online. But… The thing with online shopping is that it hires even more people than retail did to deliver the same goods. Somebody has to come to hand-deliver the stuff to you. At least you go find it yourself in retail.

Hence retail remains one of the biggest employers of people.

Then comes a long list of people-driven businesses such as hospitality, food, airlines, logistics and transportation. These are all businesses that require a huge workforce. Further, they need this workforce all along the supply chain.

Not one company in these sectors is laying off people.

All of the companies that need manpower to grow are only complaining of worker shortages. This post is already really long so you can read it here, here and here.

The labour market is thriving and that is scaring the shit out of the Central Banks all across the world. Their only mandate is to tame inflation. With a constant labour shortage, there is no way for businesses to reduce salaries (which are not high, by the way). Without lower salaries, inflation will not be tame. Or so they will say.

Inflation is high not because labour has had some great windfall. It is because greedy oil barons will not bring oil prices down. They posted $190 Billion in quarterly profits.

Inflation has nothing to do with the labour market. They are entirely disconnected.

There is a shortage of labour because labour has seen how capital treats it and no longer wishes to play along. They are still fighting for a decent wage, though other options are becoming available to them. Not a single company that has intensive operations and depends on people for it, is laying off.

At the same time, all of the politicians across the world are shamelessly letting the oil companies price gouge the very same labour which is driving costs up resulting in inflation.

In the meantime, the idiots at Central Banks across the world have come up with the wrong diagnosis, therefore a wrong prescription and are increasing interest rates to slow down the economy hoping that would tame inflation.

With $190 Billion in profits, who needs debt?!!

So why the layoffs?

Normally, a business lays off people when they are facing a downturn. It would take a mad person to lay off people in anticipation of a downturn.

Picture this.

Your business is growing. You are posting revenue growth quarter after quarter. Someone tells you that a downturn is coming. As a business owner, I would expect you to determine your next course of action based on what you see on the ground, not based on some consultant who had zero experience in actually having run a business.

You will go on the basis of what you see. But…

Many tech companies, especially the large ones, had weaponised hiring. It kept talent away from competitors. They recruited them and made them work on phantom projects so long as a competitor could not get their hands on them. This list of such companies is impressive -

Google, Meta, Microsoft, Amazon, and the list goes on…

All of the companies that have laid off staff have been tech companies. ALL.

I can wager a bet that all of them will post an increase in revenue next quarter. Letting go of people should hurt your top line if all of them were actually contributing to the growth of the company, no?

More than 100,000 tech workers were being held in place simply to keep the competitors from getting a hold of them. With fear in the market, these companies are aware that raising capital as a private organisation is not going to be easy. So the arms race can end, for now.

Now, if you are thinking private organisations are paragons of efficiency and would not do anything that would waste money, you can read this article on Bullshit Jobs.

Tech recruitment was a sham, a farce, and perhaps even a crime. With private investors running scared anticipating a downturn, there is no need to keep up the facade.